We did not learn price control in class, nor do we have a textbook. Can someone help me out with the below problem, or direct me to a site that can help explain to me how to do this problem? Thanks!
There's a Market for Credit.
The avg. interest rate charged to a NEW credit card cust. is 21%. What happens in this market for credit if the govt passes a law stating the max. interest rate a bank can charge ANY credit card customer is 18%?Help with Econ Problem? (Price control problem)?
Usually when the government interferes with the equilibrium rate it creates more problems. If the rate should have been 21% but instead is pegged at no higher than 18% what will happen is that there will be a shortage of credit and a black market for credit may arise. In this black market the interest rates charged would be higher than even 21% and it would be the customers who end up suffering in the end.
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